Libra New Moon Blows Off TARP, Exposing Big Hole In $700B Bailout Bill

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Despite the dire predictions of complete economic collapse if Treasury Secretary Paulson’s TARP (Troubled Assets Relief Program) bill failed to pass, another day has dawned. The American people know a TARP is a temporary band-aid to cover up the damage underneath it that occurred from a hurricane, for example. You can’t use the same occult (hidden) methods that got the economy in this mess to get us out. Wall Street demanded the government grant them the freedom to practice their financial alchemy in private. Now they’re begging for government help, yet they still shun transparency. Washington is all too willing to accommodate, choosing to keep their handling of the situation as opaque as possible.

Anyone who understands planetary cycles could have told Paulson and the politicians the plan would face problems. Even The Wall Street Journal admits that “in many ways, the proposal was star-crossed from the beginning.” ;-) Paulson’s proposal arrived on Capitol Hill on September 20 when the Moon was in Mercury-ruled Gemini, a sign known for being changeable. The Moon is our emotional barometer, and it was preparing to challenge Saturn in Virgo that Saturday evening. This increased the possibility the bill would face delays and roadblocks. The Virgo Sun challenging Pluto then was reflected in the Treasury Secretary’s proposal, granting him unchecked and unlimited power to do whatever he wished without Congressional or legal interference.

In an August post on Mars in Libra, I cautioned that Mercury in Libra conjoining Mars the day before Mercury went retrograde September 24 would bring about hastily arranged agreements that were unlikely to last. Sure enough, opposition rose rapidly on September 24. Some minor improvements got inserted into the bill, but every time the bill was placed on Libra’s scales of balance it was grossly tilted to Wall St. Congressional leadership told Paulson and the White House they needed to sell the plan to the public by taking a cue from the Paulson doctrine of moral hazard by demanding warrants in companies selling their “troubled assets” to the Treasury. They wanted the Street’s top execs not to have a golden parachute if they got pushed out of their ivory towers. Rather than put anything in the bill that would help Main St, the leadership tried to convince the public that government buying the “troubled assets” would be done in such a way to “protect the taxpayer”, and was necessary to prevent job losses, obtaining credit, etc.

The public made it clear to their Representatives in Congress they want more than a TARP to cover Wall St. The bill was unable to pass on the Libra New Moon due to its many imbalances. The New Moon challenging Jupiter in Capricorn and Mercury retrograde in Libra prompted people to review the bill, revealing a giant hole the TARP was attempting to cover up. Now Congressional leaders are trying to figure out how they can restart the bill; some members have proposed a revote.

The big hole reflects the bill’s failure to provide equal assistance to Main St. Since real estate is at the root of the problem, foreclosures need to be averted through mortgage modifications. Homeowners who are financially able to make mortgage payments if the interest rate is capped below 10% should have their loan modified without penalty or fees. A separate court with separate judges should be hired to fast track this process which in this instance should be exempt from legal challenges over the “sanctity of contracts.” Libra rules agreements. What good is a contractual agreement where one party does not have the ability to honor it?

Adjustable-rate mortgage loans (ARMs) should be prohibited for purchasing a primary residence, as the evidence is clear the majority of borrowers cannot handle it.

Regardless of whether their landlord’s mortgage is purchased by the government (in the current bill), all tenants in good standing should be protected from eviction due to foreclosure of the home they’re renting for 12 months.

Bernanke’s got the helicopters dropping money 24/7, and banks grab and hoard it. Until the government gets that this is not a liquidity crisis and that inflicting moral hazard is causing further damage to the financial system, the contagion will continue to spread. Banks refuse to lend to each other due to a lack of trust of the other bank’s financial status, along with their need to have enough capital in case of a bank run. As a company’s share price rapidly drops, a vicious cycle is set in motion that threatens the company’s survival. Companies get downgraded by the ratings agencies and are forced to quickly raise even more capital. Investors are afraid to provide capital (whether by direct injection or purchasing shares) because they’ve witnessed too many instances where capital gets diluted or completely wiped out. The fear grows as a “who’s next?” mentality settles in.

The problem with letting ideology and the government's need for punishment (very Jupiter in Capricorn) get in the way of pragmatic action is that we’re all interconnected in this mess. Our connections and relationships to others is what Libra energy is all about. Even people who are debt free and only put their money in FDIC-insured bank accounts are adversely affected by the way the government and Wall St are handling the financial crisis. The financial interconnectedness is a reflection of the universal interconnectedness. Until everyone understands this, conditions in the financial system and in the world as a whole will remain imbalanced.

The government’s continued resistance to permanent and unlimited insurance on all FDIC-insured deposits is a major contributor to the rapid bank runs that weaken a financial institution’s ability to raise capital to remain solvent. Even if people have under $100K in deposits in a bank, they’re worried about the timely processing of the checks they’ve written, online bill paying, direct deposits, etc. The FDIC needs systems in place to ensure there’s no interruption if a bank is completely taken over by the government. Even more worrisome is that in many parts of the country there are not enough banks for individuals and businesses to insure their deposits. Bank consolidation hurts consumers through miniscule savings rates and higher fees.

The underlying reason for the market’s large drop yesterday was the FDIC taking a cue from the Bush doctrine by making a pre-emptive move to push a solvent but weak bank into the arms of its larger brethren. Less than two weeks ago, Wachovia (WB) was in talks to acquire Morgan Stanley (MS). Now the fourth largest U.S. bank’s commercial banking operations will be absorbed into Citigroup (C). The deal was brokered by the FDIC who took an equity stake in Citigroup, forcing Citi to raise more capital to cover not only its bad loans but also Wachovia’s.

I think the Republicans’ proposal to have the government sell insurance to companies holding “troubled assets” is better than the government taking ownership of the securities. Democrats should agree to it; in return, the Republicans should drop all objections to mortgage modifications. In exchange for companies who modify mortgages for consumers, the government should lower their capital requirements. The bank’s capital requirements would increase to standard levels over a period of time. Regulations should be changed requiring all companies to have the highest level of capital during boom times and a lower level when economic conditions are constrained.

The Libra New Moon and Mercury retrograde in Libra remind us that meaningful change can only occur when all issues are equally addressed. Cooperation comes from showing respect, regardless of differences. Most importantly, all sides must walk the talk by setting aside ideological biases for legislation that will balance the scales equally between Wall St. and Main St. Every infliction of moral hazard further weakens the financial system, costing taxpayers more money that could have been spent on universal healthcare and infrastructure.

Related Posts: “Negative Return on Investment on Paulson’s Moral Hazard”, “After AIG, Paulson’s Moral Hazard Ends at the Golden Door”, “AIG, Lehman, and Merrill under a Harvest Moon: Parallels to the Panic of 1907”

1 comment:

Anonymous said...

Great post, many are going be in need of help and this winter will be very bad as the number of unemployed and homeless increase.